The post-Washington dissensus

[World] Bank researchers have…done extremely visible work on
globalization, on aid effectiveness, and on growth and poverty. In many
ways, they have been the leaders in these issues. But the panel had
substantial criticisms of the way that the research was used to
proselytize on behalf of Bank policy, often without taking a balanced
view, and without expressing appropriate skepticism. Internal research
that is favorable to Bank positions was given great prominence, and
unfavorable research ignored. In these cases, we believe that there was
a serious failure of checks and balances that should have separated
advocacy and research. The panel endorses the right of the Bank to
strongly defend and advocate its own policies. But when the Bank
leadership selectively appeals to relatively new and untested research
as hard evidence that these preferred policies work, it lends
unwarranted confidence to the Bank's prescriptions. Placing fragile
selected new research results on a pedestal invites later recrimination
that undermines the credibility and usefulness of all Bank research.

An Evaluation of World Bank Research, 1998-2005

When two studies last year detailed how the World Bank’s research unit
had been systematically manipulating data to show that neoliberal
market reforms were promoting growth and reducing poverty in developing
countries, development circles were not shocked. They merely saw the
devastating findings of a study by American University Professor Robin
Broad and a report by Princeton University Professor Angus Deaton and
former International Monetary Fund chief economist Ken Rogoff as but
the latest episode in the collapse of the so-called Washington
Consensus.
Taking off from Margaret Thatcher’s famous remark, partisans of this
development model during its heyday the 1980’s and early 1990’s claimed
that the alternative to the Washington Consensus was TINA — that is,
“There is no alternative.” The Washington Consensus broke with economic
strategies involving heavy participation by government and positioned
the unfettered market as the driver of development.

Imposed on developing countries in the form of “structural adjustment”
adjustment programs funded by the International Monetary Fund (IMF) and
the World Bank, the Consensus reigned until the late 1990s, when the
evidence became clear that on all key criteria of development —
sustained growth, poverty reduction, and reduce inequality — it simply
was not delivering. By the first half of this decade, the Consensus had
undergone a process of unraveling, although neoliberalism remained the
default mode for many economists and technocrats that had lost
confidence in it, simply out of inertia.

The former adherents of the Consensus have gone off in divergent
directions. Despite frequent references to it, there is, in fact, no
“Post-Washington Consensus.”

Washington Consensus Plus

Mindful of the failures of the Washington Consensus, the IMF and the
World Bank are now promoting what Nobel laureate Joseph Stiglitz has
disdainfully described as the “Washington Consensus Plus” approach —
that is, that market reforms, while crucial, are not enough. Financial
reforms, for instance, must be “sequenced,” if we are to avoid such
debacles as the Asian financial crises, which even the Fund now admits
was due to massive capital inflows into countries that liberalized
without strengthening their “financial infrastructure.”

Mindful of the Russian descent into the hell of mafia capitalism in the
1990s, the two institutions also now talk about the importance of
accompanying market reform with institutional and legal reforms that
can enforce private property and contracts. Other accompaniments of
market reforms are “good governance” and policies to “develop human
capital” such as female education.

This mix of market and institutional reforms were consolidated in the
first years of this decade in the so-called Poverty Reduction Strategy
Papers (PRSPs). In contrast to what one analyst has described as the
“bare knuckle neoliberalism” of structural adjustment programs, PRSPs
were not only more liberal in content but in process: They were
supposed to be formulated in consultation with “stakeholders,”
including civil society organizations.

Despite its icing of institutional reforms, the core of the PRSP cake
remains the same macroeconomic fundamentals of trade liberalization,
deregulation, privatization, and commercialization of land and
resources at the heart of structural adjustment programs. And community
consultation has been limited to well-resourced, liberal
nongovernmental organizations rather than broad-based social movements.

PRSPs indeed are simply second generation structural adjustment
programs that seek to soften the negative impact of reforms. As IMF
Managing Director Rodrigo Rato has admitted, the purpose of
institutional reforms is “to make sure that the fruits of growth are
widely shared and the poorest people are protected from the costs of
adjustment” in order to prevent people from being “tempted to give up
on orthodox economic policies and structural reforms.”

Neoconservative neoliberalism

A second successor to the Washington Consensus is what one might call
the “neoconservative neoliberalism.” This approach is essentially the
development policy of the Bush administration.

The inspiration for this strategy was provided by the famous 2000
report of a congressional commission on multilateral institutions
headed by conservative academic Alan Meltzer, which proposed a radical
slimming down of the World Bank. It supports — at least rhetorically
— debt relief for the poorest countries on the ground that they won’t
be able to pay the debt and seeks a shift from loans to grants.

However, debt relief and grant aid are conditioned on how governments
perform in terms of liberalizing their markets and privatizing their
industries, land and natural resources. Indeed, the main reason for
preferring grants is that, in contrast to loans channeled through the
World Bank, grants, as Undersecretary of State John Taylor put it, “can
be tied more effectively to performance in a way that longer-term loans
simply cannot.”

Moreover, grants would allow pro-market reforms and aid policy
generally to be more directly coordinated with Washington’s security
objectives and with the agenda of US corporations. Compared to the
original Washington Consensus, neoconservative neoliberalism is less
doctrinaire, but in an illiberal direction, ready as it is to let the
market play second fiddle to power.

Neostructuralism

A third distinctive successor to the Washington Consensus,
neostructuralism, moves, in contrast, in a more liberal direction. This
is an approach associated with the Economic Commission for Latin
America (CEPAL) that produced the structuralist theory of
underdevelopment in the 1950s under the leadership of the venerable
Argentine economist Raul Prebisch.

According to neostructuralism, neoliberal policies have simply been too
costly and counterproductive. In fact, there is no trade-off between
growth and equity, as the neoliberals claim, but a “synergy.” Less
inequality in fact would enhance, not obstruct, economic growth by
increasing political and macroeconomic stability, boosting the saving
capacity of the poor, raising educational levels, and expanding
aggregate demand.

The neostructuralists thus propose progressive transfer payment
policies that redistribute income in ways that increase the human
capital or productivity of the poor, including higher spending for
health, education, and housing programs. These are the kinds of
programs associated with what the Mexican polemicist Jorge Castaneda
has called the “Good Left” in Latin America, meaning the governments of
Lula in Brazil and the Concertacion alliance in Chile.

Being focused on managing transfer payments to protect and upgrade the
capacity of the poor, the neostructuralist approach does not interfere
with market forces in production, unlike the policies of the “Bad Left”
(meaning Hugo Chavez and friends) that intervene in production,
markets, and wage policies.

The neostructuralists also embrace globalization, and they say that a
key objective of their reforms is to make the country more globally
competitive. Because they simultaneously allegedly alleviate income
disparities, upgrade the capacity of the poor, and make the work force
more globally competitive, neostructuralist reforms are said to hold
out the prospect of making globalization more palatable, if not
popular. Neostructuralists proudly proclaim that their approach is the
“high road” to globalization, in contrast to the “low road” of the
neoliberals.

The problem is that neostructuralist reforms have led to what one of
its most thoughtful critics, Chilean economist Fernando Leiva, calls
the “heterodox paradox,” that is, in the quest for systemic or
comprehensive competitiveness, the carefully crafted neostructuralist
policies have actually led to “the politico-economic consolidation and
regulation of neoliberal ideas and policies.”

In the end, neostructuralism, like the Washington Consensus Plus
approach, does not fundamentally reverse but simply mitigate the
poverty and inequality-creating core neoliberal policies. The Lula
government’s targeted anti-poverty program may have reduced the ranks
of the poorest of the poor but institutionalized neoliberal policies
continue to reproduce massive poverty, inequality, and stagnation in
Latin America’s biggest economy.

Global social democracy

The more than residual attachment to neoliberalism of neostructuralism
is less evident in the case of what we might call Global Social
Democracy, an approach that has become identified with people such as
economist Jeffrey Sachs, sociologist David Held, Nobel laureate Joseph
Stiglitz, and the British charity Oxfam.

Unlike the three previous approaches, this perspective acknowledges the
fact that growth and equity may be in conflict, and it ostentatiously
places equity above growth. It also fundamentally questions the central
thesis of neoliberalism: that for all its problems, trade
liberalization is beneficial in the long run. Indeed, Stiglitz says
that in the long run, trade liberalization may in fact lead to a
situation where “the majority of citizens may be worse off.”

Moreover, the global social democrats demand fundamental changes in the
institutions and rules of global governance such as the IMF, WTO, and
the Trade Related Intellectual Property Rights Agreement (TRIPs). David
Held, for instance, calls for the “reform, if not outright abolition,
of the TRIPs Agreement,” while Stiglitz says that “rich countries
should simply open up their markets to poorer ones, without reciprocity
and without economic or political conditionality.” Also, “middle-income
countries should open up their markets to the least developed
countries, and should be allowed to extend preferences to one another
without extending them to the rich countries, so that they need not
fear that imports might kill their nascent industries.”

The global social democrats even see the anti-globalization movement as
an ally, with Sachs thanking it “for exposing the hypocrisies and
glaring shortcomings of global governance and for ending years of
self-congratulation by the rich and powerful.” But globalization is
where the global social democrats draw the line. For like classical
neoliberalism, the Washington Consensus Plus school, and
neostructuralism, global social democracy sees globalization as
necessary and fundamentally sound and, if managed well, as bringing
benefits to most.

Indeed, the global social democrats see themselves as saving
globalization from the neoliberals. This is all the more important
because, contrary to an assumption that was gospel truth just a few
years ago — the globalization was irreversible — the global social
democrats worry that contemporary globalization is, in fact, in danger
of being reversed, and they hold up as a cautionary tale about the
consequences of such a development the turbulent reversal of the first
wave of globalization after 1914.

To Sachs, Held, and Stiglitz, the benefits of globalization outstrip
the costs, and what the world needs is a social democratic or
“enlightened globalization” where global market integration proceeds
but is one that is managed fairly and is accompanied by a progressive
“global social integration.” The aim, as Held puts it, is to “provide
the basis for a free, fair, and just world economy,” where the “values
of efficient and effective global economic processes…function in a
manner commensurate with self-determination, democracy, human rights,
and environmental sustainability.”

Can globalization be humanized?

There are several problems with global social democracy’s attachment to globalization.

First of all, it is questionable that the rapid integration of markets
and production that is the essence of the globalization can really take
place outside a neoliberal framework whose central prescription is the
tearing down of tariffs walls and the elimination of investment
restrictions. Slowing down and mitigating this inherently destabilizing
process, not reversing it, is the global social democratic agenda.

That global social democrats have come to terms with the fundamental
tendency of global market forces to spawn poverty and inequality is
admitted as much by Sachs who sees social democratic globalization as
“harnessing [of] the remarkable power of trade and investment while
acknowledging and addressing limitations through compensatory
collective action.”

Secondly, it is likewise questionable that, even if one could conceive
of a globalization that takes place in a socially equitable framework,
this would, in fact, be desirable. Do people really want to be part of
a functionally integrated global economy where the barriers between the
national and the international have disappeared? Would they not in fact
prefer to be part of economies that are susceptible to local control
and are buffered from the vagaries of the international economy?

Indeed, the backlash against globalization stems not only from the
inequalities and poverty it has created but also the sense of people
that they have lost all semblance of control over the economy to
impersonal international forces. One of the more resonant themes in the
anti-globalization movement is its demand for an end to export-oriented
growth and the creation of inwardly-oriented development strategies
that are guided by the logic of subsidiarity, where the production of
commodities takes place at the local and national level whenever that
is possible, thus making the process susceptible to democratic
regulation.

The larger problem

The fundamental problem with all four successors to the Washington
Consensus is their failure to root their analysis in the dynamics of
capitalism as a mode of production. Thus they fail to see that
neoliberal globalization is not a new stage of capitalism but a
desperate and unsuccessful effort to overcome the crises of
overaccumulation, overproduction, and stagnation that have overtaken
the central capitalist economies since the mid-1970s.

By breaking the social democratic capital-labor compromise of the
post-World War II period and eliminating national barriers to trade and
investment, neoliberal economic policies sought to reverse the
long-term squeeze on growth and profitability. This “escape to the
global” has taken place against the backdrop of a broader
conflict-ridden process marked by renewed inter-imperialist competition
among the central capitalist powers, the rise of new capitalist
centers, environmental destabilization, heightened exploitation of the
South — what David Harvey has called “accumulation by dispossession”
— and rising resistance all around.

Globalization has failed to provide capital a escape route from its
accumulating crises. With its failure, we are now seeing capitalist
elites giving up on it and resorting to nationalist strategies of
protection and state-backed competition for global markets and global
resources, with the US capitalist class leading the way. This is the
context that Jeffrey Sachs and other social democrats fail to
appreciate when they advance their utopia: the creation of an
“enlightened global capitalism” that would both promote and “humanize”
globalization.

Late capitalism has an irreversible destructive logic. Instead of
engaging in the impossible task of humanizing a failed globalist
project, the urgent task facing us is managing the retreat from
globalization so that it does not provoke the proliferation of runaway
conflicts and destabilizing developments such as those that marked the
end of the first wave of globalization in 1914.